Rebounding New York Stock Market, Early Session Gains... Expectations for a Soft Landing

The three major indices of the U.S. New York stock market showed an upward trend in the early session on the 21st (local time) after trading in a flat range. This is a rebound just one day after a sharp drop.

At around 10:30 a.m. at the New York Stock Exchange (NYSE) on the day, the Dow Jones Industrial Average was trading at around 37,319 points, up 0.64% from the previous close. The S&P 500, which focuses on large-cap stocks, was up 0.73% at 4,732 points, and the tech-heavy Nasdaq index was up 0.79% at 14,893 points.

Currently, all 11 sectors in the S&P 500 are showing gains. Micron, which released earnings that exceeded Wall Street expectations after the previous day's close, jumped nearly 7% from the previous close. Nvidia, Intel, Qualcomm, and others are also up more than 1%. Cruise company Carnival rose nearly 4% after reporting smaller-than-expected losses before the market opened. Salesforce is up nearly 2% after Morgan Stanley upgraded its investment rating. Boeing is trading steady after reports that Chinese aviation authorities approved the resumption of deliveries of the 737 Max aircraft.

[Image source=Reuters Yonhap News]

Investors are closely watching corporate earnings including Micron's, economic indicators such as third-quarter gross domestic product (GDP), and movements in Treasury yields. Although a sharp decline was seen the previous day due to rallies and profit-taking, attention is turning back to expectations of interest rate cuts by the Federal Reserve (Fed). The preliminary U.S. third-quarter growth rate, which still approaches 5%, has also boosted expectations for a soft landing, positively influencing investor sentiment.

According to the U.S. Department of Commerce, the finalized third-quarter GDP increased at an annualized rate of 4.9% compared to the previous quarter. This is a 0.3 percentage point downward revision from the preliminary figure of 5.2% announced at the end of last month. It also fell short of the expert forecast of 5.1% compiled by The Wall Street Journal (WSJ). The downward revision is attributed to a slowdown in consumer spending growth from 3.6% to 3.1%. U.S. GDP is released three times?advance, preliminary, and final?each incorporating additional data.

Despite this downward revision, the third-quarter growth rate is the highest since the fourth quarter of 2021, when the base effect after the pandemic led to a 7.0% growth rate. It also shows clear growth compared to the previous quarter's 2.1%. The annualized 4.9% matches the previously released advance estimate. Earlier, the U.S. economy in the third quarter recorded 4.9% in the advance estimate and 5.2% in the preliminary estimate, supported by strong personal consumption, private investment, housing investment, and government spending despite accumulated tightening.

However, concerns about the U.S. economy in the fourth quarter are also evident on Wall Street. Inflation remains well above the 2% price stability target, and the cumulative effects of rate hikes, credit tightening, depletion of excess savings after the pandemic, and the resumption of student loan repayments are expected to negatively impact the overall economy.

On the same day, the Department of Labor reported that weekly initial jobless claims rose by 2,000 to 205,000, below the expert forecast of 215,000. Although claims increased from the previous week, they remain at a low level. Continuing claims for unemployment benefits, which require at least two weeks of filing, decreased by 1,000 to 1,865,000 from the previous week.

Investors are now focusing on the inflation data to be released the next day. Wall Street estimates that the November Personal Consumption Expenditures (PCE) price index, to be released on the 22nd, will rise 0.1% month-over-month and 3.2% year-over-year, continuing a slight deceleration. If the slowdown exceeds market expectations, hopes for rate cuts next year could gain further momentum. According to the Chicago Mercantile Exchange (CME) FedWatch tool, federal funds futures currently reflect nearly an 85% chance that the Fed will cut rates by at least 0.25 percentage points at the March meeting.

In the New York bond market, Treasury yields are declining. The benchmark 10-year U.S. Treasury yield fell to around 3.86%. At one point during the session, it dipped below 3.85%, marking the lowest level since July. The 2-year yield, sensitive to monetary policy, stands at 4.33%. The dollar index, which measures the value of the U.S. dollar against six major currencies, is down about 0.4% at 101.9. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's fear gauge, is trading above the previous close by more than 1% at around 13.8.

European stock markets are all down. Germany's DAX index is down 0.38%, France's CAC index is down 0.39%, and the UK's FTSE index is down 0.3%.